Mutual Funds vs ETFs: Which Should You Invest In?

The growing popularity of exchange-traded funds has outpaced traditional mutual funds among many investors who follow finance on social media and use digital trading platforms. That said, financial professionals stress that both ETFs and mutual funds have distinct roles in a well-constructed investment plan, and the right choice depends on an individual’s objectives and circumstances.

Tony Salgado, president and founder of AMS Wealth, says the key question is the investor’s financial planning objective: what are you trying to accomplish, over what time frame, and how much risk can you tolerate?

“The real question becomes: What is the financial planning objective?” he said.

ETFs generally offer lower ongoing costs and the convenience of intraday trading, which appeals to many self-directed and younger investors, particularly those using robo-advisers and automated investing platforms. Mutual funds, by contrast, are typically actively managed by professional portfolio managers and often carry higher management fees and different fee structures.

Recent flows show these preferences in action. According to the Investment Funds Institute of Canada, mutual funds recorded net sales of $15.2 billion in 2024—the first year of positive net sales since 2021—while ETF net sales reached a record $75 billion in 2024, exceeding the combined totals of the prior two years. These numbers reflect a marked shift of investor capital toward ETFs, though they do not negate the continued demand for mutual funds in certain situations.

Choosing based on goals, size and time horizon

Matthew Ardrey, senior financial planner at TriDelta Private Wealth, emphasizes that the optimal vehicle depends on the client’s needs. For many investors starting out, ETFs can deliver broad diversification at a low cost, which makes them an efficient choice for a smaller portfolio. Ardrey explains that for a portfolio around $100,000, ETFs often make sense as a foundation because they provide exposure to a wide range of assets with lower fees.

As a portfolio grows, however, there may be reasons to introduce actively managed mutual funds or other bespoke solutions. “It’s about finding what is the right solution for the client and what are they looking for,” Ardrey said. He also notes that some ETFs are actively managed and can be cost-effective while offering active strategies that would traditionally be found in mutual funds.

Many advisers use a blend of ETFs and mutual funds to balance diversification, yield and active management. Combining different structures can help tailor a portfolio to specific income targets, tax considerations and risk tolerance.

Low fees do not guarantee gains

While lower fees are a major advantage of many ETFs, Salgado cautions that cost is only one factor. Lower expense ratios do not protect an investor from market declines or volatility. An ETF that tracks equities, for example, can still fall in value during downturns. The investor’s stage of life and financial priorities should guide the choice: younger investors with a long time horizon may favor equity ETFs to build long-term wealth, while older investors seeking capital preservation might prefer more conservative strategies that could include mutual funds or fixed-income solutions.

Read the fine print before investing

Before committing capital, both advisers recommend taking time to understand exactly what you are buying. That includes the fund’s strategy, underlying holdings, fee structure, tax implications and how the product trades.

One important operational distinction is trading mechanics: ETFs trade throughout the day on an exchange like a stock, so prices fluctuate intraday. Mutual funds, however, are priced once a day at the net asset value (NAV) calculated after markets close. In periods of high volatility, two funds following the same strategy could be executed at different effective prices because of these differences in timing and liquidity.

Look “under the hood” at tracking error, bid-ask spreads, management fees, and any additional costs such as commissions or platform fees. Consider how each product fits within your broader financial plan, including retirement goals, tax planning and any income needs.

Bottom line

ETFs and mutual funds are tools—not competing absolutes. Choose based on your financial goals, timeline and tolerance for risk. For many retail investors, ETFs serve as a low-cost, diversified starting point, while mutual funds can offer active management and specialized strategies that may be useful as wealth grows or circumstances change. Take the time to review fees, structure and trading mechanics, and consider consulting a financial planner to build a portfolio tailored to your objectives.

Read more about investing:

• Moving away from Canada? Your mutual funds can’t go with you
• Tax implications of giving your spouse money to invest
• What are mutual funds?
• How is investment income taxed in Canada?